C5 3 consolidating an unprofitable subsidiary

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[IFRS ] An entity is required to consider all facts and circumstances when assessing whether it is an investment entity, including its purpose and design.

IFRS 10 provides that an investment entity should have the following typical characteristics [IFRS ]: The absence of any of these typical characteristics does not necessarily disqualify an entity from being classified as an investment entity.

[Note: The investment entity consolidation exemption was introduced by Investment Entities, issued on 31 October 2012 and effective for annual periods beginning on or after 1 January 2014.] IFRS 10 contains special accounting requirements for investment entities.

Where an entity meets the definition of an 'investment entity' (see above), it does not consolidate its subsidiaries, or apply IFRS 3 Business Combinations when it obtains control of another entity.

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[IFRS 10: B94, IFRS 10: B89] The reporting entity also attributes total comprehensive income to the owners of the parent and to the non-controlling interests even if this results in the non-controlling interests having a deficit balance.

[IFRS 10: B88] The parent and subsidiaries are required to have the same reporting dates, or consolidation based on additional financial information prepared by subsidiary, unless impracticable.

Where impracticable, the most recent financial statements of the subsidiary are used, adjusted for the effects of significant transactions or events between the reporting dates of the subsidiary and consolidated financial statements.

[IFRS 10:4B] Consolidation procedures Consolidated financial statements: [IFRS 10: B86] A reporting entity includes the income and expenses of a subsidiary in the consolidated financial statements from the date it gains control until the date when the reporting entity ceases to control the subsidiary.

Income and expenses of the subsidiary are based on the amounts of the assets and liabilities recognised in the consolidated financial statements at the acquisition date.

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